The Golf Club Company makes custom golf clubs. The manufacturing supervisor interviews people who have specialized manufacturing skills, and he informs payroll when an employee is hired. The employees use a time clock to record the hours they work. The

Question

employees are also required to keep a record of the time they spend working on each order. The supervisor approves all time cards. The accountant analyzes the job tickets and prepares a labor distribution summary. Payroll prepares the payroll register and paychecks. The supervisor distributes the paychecks to the employees. Payroll informs cash disbursement of the funds required to cover the entire payroll amount. The cash disbursements clerk ensures that there are adequate funds in the company's regular checking account to cover the payroll. Describe at least three internal control weaknesses; for each weakness suggest an improvement to internal control.

Answer 1

WEAKNESS: The supervisor could be creating fictitious employees. The supervisor has too many incompatible duties; he hires workers, approves the time cards, and distributes the paychecks.
IMPROVEMENT: Segregate duties. Personnel should hire employees and a paymaster should distribute paychecks.

WEAKNESS: Employees could be paid for time they do not work; a co-worker could record an absent worker as present (punch the time clock).
IMPROVEMENT: Supervise the time clock. Reconcile time cards and job time tickets.

WEAKNESS: Payroll has authorization and transaction processing responsibilities. Payroll is authorizing the disbursement to fund the entire payroll. Accounts payable is not part of the system.
IMPROVEMENT: Segregate duties; accounts payable should verify the accuracy of the payroll register and create a disbursement voucher.

WEAKNESS: Payroll is funded through the general checking account.
IMPROVEMENT: Paychecks should be written on a separate payroll account.